Strong prices – particularly in the beef sector, in 2024 and predicted for 2025 – means that part-time farmers who traditionally had little or no income from their dry-stock operation will find themselves with a tax liability.
Other than better farmgate prices, incomes are also being driven higher by the increase in agri schemes, including organic schemes, and a reduction in on-farm spending as many farmers in the sector have little need for fresh spending on farm infrastructure.
For farmers with an off-farm income, or a spouse with an off-farm income who is using all of the joint tax credits, there is a risk that any farm profit could be charged at the higher rate, leading to significant tax bills.
There are some options available to help manage these bills.
Income averaging
Farmers can elect to have their profits averaged over a five-year period. This has advantages in a strong year, as it means a huge tax bill won’t arrive.
It also means that any year where a loss is made can be taken advantage of in a strong year. However, it does mean that a year with a small income can come with a large tax bill attached.
If a farmer decides to opt for income averaging, then they are locked in for a five-year period. If they want to opt-out, then there is a lookback to calculate if it has been advantageous over the preceding four years.
Overall, averaging can look like a very good idea when farm profits are high, but can become a pain, and even lead to cashflow difficulties in a tight year when the tax bill is based on a higher income than what was earned in the period.
Incorporation
The main reason for moving to a company structure is the tax savings that can be made. For most small drystock farmers it might not be the best option, as there is more paperwork and expense involved in being a company rather than a sole trader. However, for larger and more profitable operations it definitely can make sense.
Retained profits in a company are taxed at 12.5%, versus the marginal tax rate which can be as high as 54%.
Incorporation can be particularly advantageous where a farmer seeks to make a significant investment such as the purchase of land, as loan repayments are made from retained income, which will be significantly larger under a company structure than when being taxed as an individual with an off-farm income.
Seek independent tax advice about the advantages and disadvantages of incorporation, and whether it is the right long-term move for your farm business.
Other tax saving ideas
Family salary – wages paid to a child or spouse for legitimate work done can be deductible, provided the wages are reasonable and align with Revenue guidelines. Those wages can be tax free for the person being paid, up to certain limits. This approach not only reduces taxable income, but also supports family members financially.
Stock relief – this operates by allowing farmers to claim a deduction in the increased value of livestock in an accounting period. The relief is calculated as follows:Standard relief – 25%Farmers operating as registered partnership – 50%Qualifying young trained farmers – 100%Farm partnerships – these are particularly tax efficient when used as part of succession planning, with tax credits of up to €5,000 per year available under the Succession Farm Partnership Scheme. Accelerated capital allowances – while capital spending on farm is generally written off against tax over several years, there are schemes that allow more of spending to be written off in the year the investment is made. Farm Safety Allowances allow farmers to claim 50% of qualifying expenditure over two years for upgrades like installing a cattle crush or modernising animal housing.
Accelerated capital allowances are also available for slurry storage facilities where spending can be claimed over a two year period.
Most valuably, 100% of qualifying expenditure on energy-efficient equipment can be claimed in the first year.
Spending on farm buildings, renovations, roadways, and land reclamation can be claimed over seven years.
Pensions – adding as much as possible to pension contributions is extremely tax efficient, see page 54 for more details. Tax planning and succession
The Government in Ireland has engaged in several measures in recent years to encourage farmers to get their succession plans in order.
Where there is a chosen successor and timeline for the transfer of a farm to the next generation, the establishment of a farm partnership between the farmer and their successor makes good financial sense.
These Succession Farm Partnerships are worth an annual €5,000 in tax credits for up to five years.
That tax credit is divided between the farmer and their successor in the proportion of their entitlement to the profits from the farm. Under the scheme, the successor must be entitled to at least 20% of the farm profits.
As well as the profit entitlement, the successor must be under 40 years of age and have an appropriate qualification in agriculture. The farmer must have farmed at least three hectares for the past two years.
The minimum number of people in the partnership is two.
The partnership must be registered with the Department of Agriculture’s register of partnerships and have a Farm Partnership Registration Number (FPRN).
There is a succession planning advice grant available to help with the costs of succession planning which can cover up to 50% of the costs from legal, accountancy and advisory bills incurred as part of the process.
In order to qualify for this grant, the farmer must be at least 60 years of age.
While it is not necessarily tax advice, the one thing any farmer should already have is a will made. If a farmer dies intestate (without leaving a valid will) then their farm is distributed as per the rules set out in the Succession Act 1965.
This means that the farm would be divided among their relatives, with a spouse or civil partner getting the lion’s share.
If a farmer dies without a will and without relatives, then their farm goes to the State, which effectively would be a 100% tax on the farm.
Comment
As noted several times across these pages, the need for good independent tax advice is critical when looking at maximising savings. Farm incomes are very volatile, so what works for 2024 and 2025 might end up being the wrong idea for future years. Also, every farmer’s situation is unique. Do they have an off-farm income? Do they have a spouse or partner? Do they have children? Even the age a farmer is can significantly influence the right tax plan for their business.
With 2024 taxes not due for payment until the autumn, it might seem like taxes are something that can be ignored for now, but if a plan can be put in place well in advance of the deadline, it will mean much less pressure closer to that date. Your accountant will certainly thank you for not piling extra work on them at their busiest time of the year.
Strong prices – particularly in the beef sector, in 2024 and predicted for 2025 – means that part-time farmers who traditionally had little or no income from their dry-stock operation will find themselves with a tax liability.
Other than better farmgate prices, incomes are also being driven higher by the increase in agri schemes, including organic schemes, and a reduction in on-farm spending as many farmers in the sector have little need for fresh spending on farm infrastructure.
For farmers with an off-farm income, or a spouse with an off-farm income who is using all of the joint tax credits, there is a risk that any farm profit could be charged at the higher rate, leading to significant tax bills.
There are some options available to help manage these bills.
Income averaging
Farmers can elect to have their profits averaged over a five-year period. This has advantages in a strong year, as it means a huge tax bill won’t arrive.
It also means that any year where a loss is made can be taken advantage of in a strong year. However, it does mean that a year with a small income can come with a large tax bill attached.
If a farmer decides to opt for income averaging, then they are locked in for a five-year period. If they want to opt-out, then there is a lookback to calculate if it has been advantageous over the preceding four years.
Overall, averaging can look like a very good idea when farm profits are high, but can become a pain, and even lead to cashflow difficulties in a tight year when the tax bill is based on a higher income than what was earned in the period.
Incorporation
The main reason for moving to a company structure is the tax savings that can be made. For most small drystock farmers it might not be the best option, as there is more paperwork and expense involved in being a company rather than a sole trader. However, for larger and more profitable operations it definitely can make sense.
Retained profits in a company are taxed at 12.5%, versus the marginal tax rate which can be as high as 54%.
Incorporation can be particularly advantageous where a farmer seeks to make a significant investment such as the purchase of land, as loan repayments are made from retained income, which will be significantly larger under a company structure than when being taxed as an individual with an off-farm income.
Seek independent tax advice about the advantages and disadvantages of incorporation, and whether it is the right long-term move for your farm business.
Other tax saving ideas
Family salary – wages paid to a child or spouse for legitimate work done can be deductible, provided the wages are reasonable and align with Revenue guidelines. Those wages can be tax free for the person being paid, up to certain limits. This approach not only reduces taxable income, but also supports family members financially.
Stock relief – this operates by allowing farmers to claim a deduction in the increased value of livestock in an accounting period. The relief is calculated as follows:Standard relief – 25%Farmers operating as registered partnership – 50%Qualifying young trained farmers – 100%Farm partnerships – these are particularly tax efficient when used as part of succession planning, with tax credits of up to €5,000 per year available under the Succession Farm Partnership Scheme. Accelerated capital allowances – while capital spending on farm is generally written off against tax over several years, there are schemes that allow more of spending to be written off in the year the investment is made. Farm Safety Allowances allow farmers to claim 50% of qualifying expenditure over two years for upgrades like installing a cattle crush or modernising animal housing.
Accelerated capital allowances are also available for slurry storage facilities where spending can be claimed over a two year period.
Most valuably, 100% of qualifying expenditure on energy-efficient equipment can be claimed in the first year.
Spending on farm buildings, renovations, roadways, and land reclamation can be claimed over seven years.
Pensions – adding as much as possible to pension contributions is extremely tax efficient, see page 54 for more details. Tax planning and succession
The Government in Ireland has engaged in several measures in recent years to encourage farmers to get their succession plans in order.
Where there is a chosen successor and timeline for the transfer of a farm to the next generation, the establishment of a farm partnership between the farmer and their successor makes good financial sense.
These Succession Farm Partnerships are worth an annual €5,000 in tax credits for up to five years.
That tax credit is divided between the farmer and their successor in the proportion of their entitlement to the profits from the farm. Under the scheme, the successor must be entitled to at least 20% of the farm profits.
As well as the profit entitlement, the successor must be under 40 years of age and have an appropriate qualification in agriculture. The farmer must have farmed at least three hectares for the past two years.
The minimum number of people in the partnership is two.
The partnership must be registered with the Department of Agriculture’s register of partnerships and have a Farm Partnership Registration Number (FPRN).
There is a succession planning advice grant available to help with the costs of succession planning which can cover up to 50% of the costs from legal, accountancy and advisory bills incurred as part of the process.
In order to qualify for this grant, the farmer must be at least 60 years of age.
While it is not necessarily tax advice, the one thing any farmer should already have is a will made. If a farmer dies intestate (without leaving a valid will) then their farm is distributed as per the rules set out in the Succession Act 1965.
This means that the farm would be divided among their relatives, with a spouse or civil partner getting the lion’s share.
If a farmer dies without a will and without relatives, then their farm goes to the State, which effectively would be a 100% tax on the farm.
Comment
As noted several times across these pages, the need for good independent tax advice is critical when looking at maximising savings. Farm incomes are very volatile, so what works for 2024 and 2025 might end up being the wrong idea for future years. Also, every farmer’s situation is unique. Do they have an off-farm income? Do they have a spouse or partner? Do they have children? Even the age a farmer is can significantly influence the right tax plan for their business.
With 2024 taxes not due for payment until the autumn, it might seem like taxes are something that can be ignored for now, but if a plan can be put in place well in advance of the deadline, it will mean much less pressure closer to that date. Your accountant will certainly thank you for not piling extra work on them at their busiest time of the year.
SHARING OPTIONS